ABSTRACT

The political and economic environment in which China’s private sector has developed in recent years is on the whole becoming more positive but is still saddled with the legacy of policy ambiguities, uncertainties and discrimination. These problems have made the development and financing of the country’s private sector more difficult and less transparent. Thus, while China’s success in attracting inward foreign direct investment has benefited from policies aimed at providing a range of economic incentives and legal protection for foreign investors, the development and financing of the private sector have in contrast been subjected to numerous ideological biases and policy constraints. As in many other developing economies, emerging private business in China has to contend with the limited availability of finance from formal institutions. The predominantly state-owned banking system has long pumped most of its money into state-owned enterprises, leaving private enterprises and sole proprietorships to depend on informal channels and internal sources of finance.